Probability weighting in different domains: The role of affect, fungibility, and stakes

• Published in: Journal of economic psychology Vol. 51; pp. 1 - 15
• Main Author: Krawczyk, Michał Wiktor
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.12.2015; Elsevier Sequoia S.A
• Subjects: Affect; Comparative analysis; Comparative studies; Consumption; Financial incentives; Fungibility; Mathematical functions; Monetary incentives; Probability; Probability weighting functions; Prospect theory; Risk assessment; Vouchers; Prospect theory; Probability weighting functions; D81; 2360; Affect; Fungibility
• ISSN: 0167-4870; 1872-7719
• DOI: 10.1016/j.joep.2015.06.006

•I find that emotions, fungibility and stakes matter for probability weighting.•With high stakes and most fungible, monetary, rewards, probabilities are weighted nearly correctly.•With high, non-monetary stakes, affect-rich domain induces more risk taking than affect-poor one.•Under low stakes strong underweighting of probabilities prevails in all three domains. This paper reports the results of a laboratory experiment in which probability weighting functions for risky gains were elicited non-parametrically in over 500 incentivized subjects. I compared probability weights for monetary rewards to two less fungible domains involving vouchers for different types of consumption, inducing stronger or weaker (positive) emotions. The level of stakes was also manipulated. I found that the probability to win monetary rewards was weighted almost linearly in the high stakes condition, the probability to win vouchers associated with stronger positive affect was underweighted and the probability to win affect-poor vouchers was strongly underweighted. Substantial underweighting also prevailed in all three domains in the low stakes condition.